"Even before Congress unveils a consumer-protection agency, new state and federal laws are ushering in the most sweeping changes in consumer finance since the 1960s.
On July 1, Arizona will force changes on the state's 595 payday-loan stores—outfits that make high-interest loans against future paychecks—that could effectively put them out of business. Wisconsin banned small loans backed by car titles that led many people to lose their vehicles. Arkansas, Maine and New York joined other states in putting curbs on tax preparers who offer costly loans against expected tax refunds.
The federal government, meanwhile, is for the first time requiring that lenders verify a borrower's income and assets before issuing a home loan. It has also slapped broad new rules on credit-card issuers, limiting their ability to boost interest rates and charge certain fees.
"It's a pace of regulatory output we've never seen before in the consumer area," says Richard Hackett, who teaches consumer-finance law at Boston University's Morin Center for Banking and Financial Law.
The new Consumer Financial Protection Bureau, while housed inside the Federal Reserve, would be fully independent of the central bank, with a leader appointed by the president and confirmed by the Senate.... It will write and enforce rules on the structuring and marketing of loans as well as other financial products sold by banks, credit unions, credit-card issuers and even neighborhood check-cashing outfits.
***
Rep. Jeb Hensarling (R., Texas), a member of the House-Senate conference committee negotiating the final bill, called the new regulator a "consumer credit rationing agency" that would "take choices away from consumers and choke desperately needed credit out of our economy."
Senate Banking Committee Chairman Christopher Dodd (D., Conn.), a leading proponent, said the agency would "watch out for the average citizen in our country when they are abused by a financial market place that takes advantage of them on home mortgages and credit cards."
QUESTIONS:
1. Who do you think is right, Rep. Hensarling, who says this new regulation will take choices away from consumers and ration credit, or Sen. Dodd, who says it will "watch out for the average citizen?" Explain your reasoning.
